Chairman Statement

Dear Shareholders,

2020 was an extraordinary year full of unprecedented challenges. Since the beginning of coronavirus outbreak, the Group has been continually producing medications to supply healthcare frontlines for fighting against the epidemic and for assuring public health. We overcame impacts of significant slowdown of the industry due to the pandemic, and achieved overall sales of RMB2.66 billion, representing a slight decrease of only 1.9% as compared to last year. However, due to an one-time non-recurring impairment charge on the intangible assets, goodwill, and fixed assets of a wholly-owned subsidiary of the Group for an aggregate amount of approximately RMB229 million, the Group’s reported net profit for 2020 had decreased by 41.4% as compared to last year. Without taking into the account of such impairment charge, the Group’s net profit for 2020 would only decrease by 0.7%.

Looking back at our track records for the past decade, the Group’s turnover and net profit had experienced negative growth for years, which was caused by various internal and external reasons. For that, we had undergone years of reformation with endeavour. In view of the current external business environment as well as the results of our reform, the Group believes that in 2021 we will be able to shake off the predicament of not achieving sustainable sales growth in the past and restore growth momentum.

First, the Chinese government has now placed Chinese medicine in a more prominent spot. With the continued promulgation of favourable policies to Chinese Medicine, the reformation and development of Chinese medicine are fostered with unprecedented efforts to guide the industry in making historical achievement. In recent months, after our government published the “the Opinions on Implementing the Promotion of the Inheritance and Innovative Development of Chinese Medicine” and “Several Policies for Accelerating the Characteristic Development of Chinese Medicine”, it also issued the “Announcements on the Ending of Pilot Trial on TCM Formula Granules” immediately afterwards. The “Outline of the 14th Five-Year Plan for National Economic and Social Development and the LongRange Objectives through the Year 2035” recently voted and passed by the National People’s Congress also stipulated to attach equal importance to Chinese and western medicine and their complimentary advantages, to vigorously develop TCM industry, to strengthen the integration of Chinese and western medicine, and to promote Chinese medicine to the world. The Chinese medicine industry is currently ushering in the historic period of the right time, the right place, and with the people’s consonance.

Over all these years, the Group has brought together plenty of superb product clusters. The Group now owns production licences of over 400 medications consisted of more than 30 exclusive products with proprietary intellectual property, spanning across 17 major product series in various therapeutic areas, including cardio-cerebrovascular, antiviral, orthopedics, pediatrics, gynecology, neurology, gastroenterology, ophthalmology, oncology and immunology medicine, and more than 600 TCM formula granule varieties. The Group has become one of the modern Chinese medicine enterprises with the most comprehensive genre of pharmaceutical products.

Riding on the advantages from our unique product lines and exclusive products, our strategies are to emphasize on the continuous enhancement of emperical research and clinical value of our products, as well as strengthening our product pipeline’s growth and development. As we fortify our products and market specialization, we are also embracing for new trends including “Internet+”, hierarchical diagnosis, and prescription outsourcing, and determined to further strengthen our ties with high-end hospitals, grass-root medical institutions, retail terminals as well as our online presence. At the same time, the Group will utilise innovative sales model to enhance effectiveness on our terminal coverage and capability on the administration and control of terminals. To seize the opportunity from rolling amendments of the National Drugs Reimbursement List/Essential Drugs List, the Group will make every effort to push forward our star product strategy which involves in-depth product re-development and undergo extensive evidence-based medical research on exclusive products so as to broaden their life cycles and expand their market opportunity.

The Group has been actively establishing our position in the TCM formula granule industry since a decade ago. As the very first company running TCM formula granules pilot trial in Hebei Province and Yunnan Province and the sixth-ranked formula granule manufacturer in the nation, and along with the opening up of the nationwide market, the Group strives to continuously solidify our leading position in the market of Hebei Province, swiftly exploit and turn Yunnan Province into a mature market and complete the strategic enhancement of formula granule production capacity in full speed. Through establishing a solid ground and riding on the opportunity from the nationwide market opening, the Group will expedite the enrollment of our TCM formula granules into other provinces and accelerate the formation of our national network. We strive to rank among the top three of TCM formula granule industry of the nation after three years.

Meanwhile, the Group is also bolstering a digital marketing ecosystem to strengthen the sales and marketing of our entire business segments. Using “Internet+” to achieve the digitalized marketing transformation of our healthcare business, we are keen to strengthen the B2B, B2C, O2O sale models as well as our self- operated online flagship store. We will continue to apply innovative pharmaceutical marketing model and modern management. Our goal is to turn online sales to become one of the Group’s main sales forces by 2023.

In terms of mid to long term development strategy, the Group will continuously strengthen research and development of strategic products. We will adhere to our focus on developing innovative medications, classic TCM prescriptions and health foods with leading national standard. The focal point will be on those that are highly recognized by the modern medical system, and those offering clinical advantages and unique characteristics in fields where Chinese medicine are superior, namely cardio-cerebrovascular diseases, pediatric diseases, oncology, orthopedic diseases, gynecological diseases and geriatric diseases. We are also keen to accelerate the pace of phase III clinical trials of Sailuotong Capsule, an innovative compound TCM, and the market launch of other new products.

The Chinese government is now pressing on the equal importance of both Chinese and Western medical treatments and the joint use of Chinese and Western medicines. The government approval of TCM injections to treat Covid-19 has fostered the prospect of future development in TCM injections products. The Group will put in our full effort to uphold the leading position of our TCM injection products by continuously investing in TCM injections clinical research, launching efficacy evaluation on TCM injections as well as boosting their clinical value. By leveraging the success in our safety re-evaluation on Shu Xie Ning Injection, Qing Kai Ling Injection and Shen Mai Injection and closely following the relevant country’s policies, we are keen to collaborate with relevant authority in launching the “Proper Usage of TCM Injections Project” to promote the appropriate prescriptions of doctors at the grass-root level and orderly conduct efficacy research to broaden the market potential of our TCM injections.

Looking back at the past year, many outstanding employees of the Group had emerged with touching deeds. They overcame the pandemic and worked diligently and tirelessly to protect the supply of our products. They fully performed their duties, and endured difficulties to ensure quality and safety of our products as a mean to support front line healthcare personnel. Especially during the sudden outbreak this year, our management personnel and staff returned to their posts immediately. While following pandemic prevention and control guidelines, they worked overtime to manufacture medications required by the market. They had proactively shouldered their social responsibility by safeguarding medication supplies for the protection of our society. This kind of generous affection and commitment of Shineway’s employees is worthy of our continued inheritance and upholding. Such achievements could only be obtained with the whole-hearted contributions by all our staff who were willing to ride out the difficult times together. Here, I would like to express my heartfelt gratitude and appreciation to all Shineway employees. Thank you all!

In 2021, using our “14th Five-Year” strategy as a guide, let’s achieve outstanding results with resolute actions and begin the Group’s new journey of greats performance!

Li Zhenjiang
Chairman of the Board
Hong Kong, 30 March 2021